GM memo outlines comeback challenges

Where General Motors Corp. once boasted of its size and strength in the U.S. market, GM has now turned an increasingly critical eye on the weaknesses that threaten its fledgling turnaround.

In an internal planning document obtained by The Detroit News, GM's global research unit takes an unusually candid and harsh look at the automaker's declining position and vulnerabilities in its home market.

The confidential study prepared for GM's top management describes the company as "big but outdated," and warns that "our advantages of size and economies of scale are eroding." It also declares that "lack of flexibility is GM's chief disadvantage."

And the document -- created by GM's influential Global Market and Industry Analysis division and marked confidential -- confirms what industry observers have said is the automaker's central challenge in trying to halt a decades-long slide in the U.S. market share.

"The biggest challenge GM faces is that more and more people, especially the young, are excluding us from their consideration list," the study said.

With GM in the midst of a huge turnaround effort after losing $10.6 billion in 2005, senior management is said to be more interested in frank assessments of the company and the marketplace than rosy projections of its future.

Paul Ballew, director of the analysis unit, confirmed the authenticity of the study and said it reflected "the brutal honesty" within today's GM.

"When you see documents such as this, it shows we are very realistic about the challenges of the marketplace and very realistic about what we have to do to meet them," Ballew said in an interview Thursday.

The document is one of several generated annually for countries and regions around the world where GM operates. Called an "environmental scan," the studies dissect specific markets and analyze GM's performance in them.

The U.S. study is used as a planning document by high-level executives responsible for GM's far-reaching turnaround plan. Troy Clarke, the new head of GM North America, was recently briefed on the study's findings, according to one company insider.

It's a reality check

One senior executive said Thursday that GM cannot afford to gloss over its long-standing problems in the U.S. market.

"In this business, you have to start out with reality," said Mark LaNeve, head of GM North American sales and marketing. "I call it 'situational awareness.' It needs to start with reality."

The reality spelled out in the U.S. study is hardly a revelation to outside observers.

The document shows how GM lost market share in all 50 states over the past five years, and is struggling to connect with "post-boomer" consumers born after 1964. It also outlines how U.S. population trends have not worked to GM's advantage.

"Population movements to the West and South define a long term trend and are expected to continue," the study said. "Most areas within these regions are weak markets for GM."

Ballew said the "brutal facts" are an important basis for discussion as GM plans its future products and market strategies.

"There is no naivete going on in this place at all," Ballew said. "We believe in honest discussion. It's healthy."

But he conceded that GM has not always cast such a critical eye on its own shortcomings.

"Twenty years ago, it was a completely different atmosphere in GM," said Ballew, who joined GM in 1999 after working for independent research firms such as J.D. Power & Associates.

GM faces uphill battle

One industry consultant said GM's dismal financial results in North America, where it hasn't earned a quarterly profit since 2004, have forced management to face some hard facts.

"They may not have done it before, but now they fully recognize that this is very much an uphill battle," said Joseph Phillippi of the consulting firm AutoTrends in Short Hills, N.J.

In the past 10 years, GM's annual U.S. market share has fallen from 31 percent to 24 percent, as of November.

While Asian automakers have gained share in the midsize passenger car and crossover utility segments, GM has focused more on maintaining its traditional strongholds in large SUVs and pickups.

That emphasis is changing, however, with the introduction of new models, including the redesigned Chevrolet Malibu sedan and Saturn Outlook crossover.

"They have got a lot of work to do," Phillippi said. "They're not going to suddenly regain a full point or two of share in a couple of years. It's going to be a brutal slog to get there."

While GM and other automakers have expanded rapidly in recent years in China and other emerging markets, the internal study said the U.S. market is still exceptionally vibrant and growing.

"The so-called emerging markets are really 'catch-up' markets," the study said. "They are merely closing the gap, not yet on the frontier."

The study forecasts the U.S. market for new-vehicle sales growing from about 17 million this year to 18 million vehicles by 2010 and 19 million by 2015.

However, the study notes that GM has lost market share since 1999 in every car-buying age group in the United States.

In a chart titled "GM's Share by Generation," the study said that the automaker's share of the "pre-boomer" market -- people born before 1946 -- fell from 32 percent in 1999 to 27 percent in 2005.

Similarly, the company's share of "boomer" buyers -- born between 1946 and 1964 -- dropped from 26 percent to 24 percent, and its share of "post-boomer" consumers -- born after 1964 -- slid from 25 percent to 21 percent.

LaNeve said GM is under no illusions about its need to develop more appealing products for older and younger consumers alike. "We have to improve consideration across all ages," he said.

Targeting the West Coast

GM is also placing a higher priority on building its share on the East and West coasts, where Asian rivals such as Toyota Motor Corp. are thriving. LaNeve said that GM's Saturn and Hummer brands have been particularly effective in luring consumers away from foreign makes.

A summary page of the internal study urges GM to anticipate, rather than react, to changes in the U.S. market, and closes with a quote from retired hockey great Wayne Gretzky. "The key to winning is getting to where the puck is going next," the study said. "Where is the next profit?"

Overall, Ballew said the purpose of such a self-critical report is to give GM another tool to improve itself.

"To paraphrase an old Confucius saying I can handle any problem that I know about," Ballew said. "It's the ones that I don't know about that get me in trouble."